Patricia Oey: The funds in the Morningstar long-short equity category are a heterogeneous bunch. Over the last three years, the category's average net exposure (meaning long exposure minus short exposure) has been around 50%, and that has exhibited an average 0.5 beta to the S&P 500. But individual funds can be significantly higher or lower than these averages. Long-short equity managers have many tools at their disposal, including stock selection, beta exposure, leverage, and investment universe (such as geography, style, or size), so performance can be quite dispersed within the category. Therefore, selecting a long-short equity strategy should involve a good understanding of both the long and short process, the manager's approach to beta management, historical portfolio trends, and the fund's performance in up and down markets.

It's been a tough environment for long-short funds given the recent multiyear equity market rally. Most funds in the category are untested, as they were not around during the 2008 financial crisis. We do like a handful of long-short equity funds, and currently have five Morningstar Medalists under coverage. They are Boston Partners Long/Short Research, AQR Long-Short Equity, Diamond Hill Long-Short, Boston Partners Global Long/Short, and Boston Partners Long/Short Equity.